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Suggested Citation:"Front Matter." National Research Council. 2009. Investor Exits, Innovation, and Entrepreneurial Firm Growth: Questions for Research: Summary of a Workshop. Washington, DC: The National Academies Press. doi: 10.17226/12811.
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Investor Exits, Innovation, and Entrepreneurial Firm Growth

Questions for Research

Summary of a Workshop

Stephen A. Merrill, Rapporteur

Committee on Investor Exit Strategies and Entrepreneurial Firm Growth

Board on Science, Technology, and Economic Policy

Policy and Global Affairs

NATIONAL RESEARCH COUNCIL OF THE NATIONAL ACADEMIES

THE NATIONAL ACADEMIES PRESS

Washington, D.C.
www.nap.edu

Suggested Citation:"Front Matter." National Research Council. 2009. Investor Exits, Innovation, and Entrepreneurial Firm Growth: Questions for Research: Summary of a Workshop. Washington, DC: The National Academies Press. doi: 10.17226/12811.
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THE NATIONAL ACADEMIES PRESS;

500 Fifth Street, N.W. Washington, DC 20001

NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance.

This study was supported by Grant No. 20070350 between the National Academy of Sciences and the Ewing Marion Kauffman Foundation. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the views of the organizations or agencies that provided support for the project.

This work/research was funded by the Ewing Marion Kauffman Foundation. The contents of this publication are solely the responsibility of the grantee.

Limited copies are available from:

Board on Science, Technology, and Economic Policy

National Research Council

500 Fifth Street, N.W., Keck Center 574, Washington, D.C., 20001

Phone: (202) 334-2200

Fax: (202) 334-1505

E-mail: step@nas.edu

Copyright 2009 by the National Academy of Sciences. All rights reserved.

Printed in the United States of America

Suggested Citation:"Front Matter." National Research Council. 2009. Investor Exits, Innovation, and Entrepreneurial Firm Growth: Questions for Research: Summary of a Workshop. Washington, DC: The National Academies Press. doi: 10.17226/12811.
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THE NATIONAL ACADEMIES

Advisers to the Nation on Science, Engineering, and Medicine


The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences.


The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Charles M. Vest is president of the National Academy of Engineering.


The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine.


The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. Charles M. Vest are chair and vice chair, respectively, of the National Research Council.


www.national-academies.org

Suggested Citation:"Front Matter." National Research Council. 2009. Investor Exits, Innovation, and Entrepreneurial Firm Growth: Questions for Research: Summary of a Workshop. Washington, DC: The National Academies Press. doi: 10.17226/12811.
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Suggested Citation:"Front Matter." National Research Council. 2009. Investor Exits, Innovation, and Entrepreneurial Firm Growth: Questions for Research: Summary of a Workshop. Washington, DC: The National Academies Press. doi: 10.17226/12811.
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PLANNING COMMITTEE ON INVESTOR EXIT STRATEGIES AND ENTREPRENEURIAL FIRM GROWTH

Timothy F. Bresnahan, Chair Landau Professor in Technology and Economy

Stanford University

Lewis Coleman President

DreamWorks Animation

Josh Lerner Jacob Schiff Professor of Investment Banking

Harvard Business School Harvard University

Edward E. Penhoet Director

Alta Partners

William R. Raduchel Independent Director and Investor

J. Leighton Read General Parnter

Alloy Ventures

Susan E. Woodward Principal

Sand Hill Econometrics, Inc.

PROJECT STAFF

Stephen A. Merrill Study Director

Mahendra Shunmoogam1 Program Associate

Daniel Mullins2 Program Associate

Cynthia Getner Financial Officer

1

Left the project in July 2008.

2

Started with the project on September 2008.

Suggested Citation:"Front Matter." National Research Council. 2009. Investor Exits, Innovation, and Entrepreneurial Firm Growth: Questions for Research: Summary of a Workshop. Washington, DC: The National Academies Press. doi: 10.17226/12811.
×

BOARD ON SCIENCE, TECHNOLOGY, AND ECONOMIC POLICY

For the National Research Council (NRC), this project was overseen by the Board on Science, Technology, and Economic Policy (STEP), a standing board of the National Research Council established by The National Academies of Sciences and Engineering and the Institute of Medicine in 1991. The mandate of the STEP Board is to integrate understanding of scientific, technological, and economic elements in the formulation of national policies to promote the economic well-being of the United States. STEP bridges the disciplines of business management, engineering, economics, and the social sciences to bring diverse expertise to bear on important public policy questions. The members of the STEP Board and the NRC staff are listed below.


Edward E. Penhoet

Chair

Director, Alta Partners


Lewis W. Coleman

President

DreamWorks Animation


Ralph E. Gomory

Research Professor, Stern School of Business

New York University


Mary L. Good

Donaghey Professor and Dean

Donaghey College of Engineering & Information Technology

University of Arkansas at Little Rock


Amory Houghton, Jr.

Former Member of Congress


William F. Meehan III

Lecturer in Strategic Management

Stanford Graduate School of Business


David T. Morgenthaler

Founding Partner

Morgenthaler Ventures


Joseph P. Newhouse

John D. MacArthur Professor of Health Policy and Management

Director, Division of Health Policy Research and Education

Harvard University


Arati Prabhakar

General Partner

U.S. Venture Partners


William J. Raduchel

Independent Director and Investor


Jack W. Schuler

Co-Founder

Crabtree Partners, LLC


Alan Wm. Wolff

Partner

Dewey & LeBoeuf LLP

Suggested Citation:"Front Matter." National Research Council. 2009. Investor Exits, Innovation, and Entrepreneurial Firm Growth: Questions for Research: Summary of a Workshop. Washington, DC: The National Academies Press. doi: 10.17226/12811.
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EX-OFFICIO MEMBERS

Ralph J. Cicerone

President

National Academy of Sciences


Charles M. Vest

President

National Academy of Engineering


Harvey V. Fineberg

President

Institute of Medicine

STEP STAFF

Stephen A. Merrill

Executive Director


Charles W. Wessner

Program Director


Sujai J. Shivakumar

Senior Program Officer


David E. Dierksheide

Program Officer


McAlister Clabaugh

Program Officer


Jeffrey McCullough

Program Associate


Adam Gertz

Program Associate


Daniel Mullins

Program Associate


Cynthia A. Getner

Financial Associate

Page viii Cite
Suggested Citation:"Front Matter." National Research Council. 2009. Investor Exits, Innovation, and Entrepreneurial Firm Growth: Questions for Research: Summary of a Workshop. Washington, DC: The National Academies Press. doi: 10.17226/12811.
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Suggested Citation:"Front Matter." National Research Council. 2009. Investor Exits, Innovation, and Entrepreneurial Firm Growth: Questions for Research: Summary of a Workshop. Washington, DC: The National Academies Press. doi: 10.17226/12811.
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Preface and Acknowledgments

In 2007 the National Academies’ Board on Science, Technology, and Economic Policy (STEP) received funding from the Ewing Marion Kauffman Foundation to hold a workshop to examine the marked change in exit strategies of venture-backed U.S. firms coinciding with the dot-com crash of 2001. In that year there was an abrupt and lasting shift away from taking firms public through initial public offerings (IPOs) and toward mergers with established firms. There had been much discussion of the causes, consequences, and policy implications of the change in exit strategies but little systematic inquiry. The purpose of the workshop was not to answer those questions but to explore the merits, feasibility, and possible directions of research on these topics, in short, to provide guidance to researchers and research sponsors.

A planning committee was appointed composed of Timothy Bresnahan, chair, Stanford University economics department; Lewis Coleman, DreamWorks Animation; Joshua Lerner, Harvard Business School; William Raduchel, independent investor and director; Edward Penhoet, currently with Alta Partners and formerly of the Gordon and Betty Moore Foundation; Leighton Read, Alloy Ventures; and Susan Woodward, SandHill Econometrics. Approximately 30 entrepreneurs, investors, and academic experts in corporate finance, law, and venture economics attended the meeting in Washington. An effort was made to select participants with methodologically and theoretically diverse backgrounds. Future discussion of the issues examined would benefit from additional perspectives, including historians of markets and entrepreneurship, technology specialists, and students of social networks.

This document is a summary report of the discussions that took place at the workshop. The committee’s role was limited to planning the meeting. As study director I prepared this summary. The views expressed in the summary are those of the speakers and discussants and are not the consensus views of participants, the planning committee, the Board on Science, Technology, and Economic Policy, or the National Academies. This report has been reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by the National Academies’ Report Review Committee. The

Suggested Citation:"Front Matter." National Research Council. 2009. Investor Exits, Innovation, and Entrepreneurial Firm Growth: Questions for Research: Summary of a Workshop. Washington, DC: The National Academies Press. doi: 10.17226/12811.
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purpose of this independent review is to provide candid and critical comments that will assist the institution in making its published report as sound as possible and to ensure that the report meets institutional standards for quality and objectivity. The review comments and draft manuscript remain confidential to protect the integrity of the process.

We wish to thank the following individuals for their review of this report: Philip Auerswald, George Mason University; Amy Dittmar, University of Michigan; Melissa Graebner, University of Texas, Austin; Mark Heesen, National Venture Capital Association; William Janeway, Warburg Pincus, LLC; and Martin Kenney, University of California.

Although the reviewers listed above have provided many constructive comments and suggestions, they were not asked to endorse the content of the report, nor did they see the final draft before its release. Responsibility for the final content of this report rests entirely with the author and the institution.

Finally, the National Academies and the STEP Board thank Dr. Robert Litan, Vice President for Research and Policy of the Kauffman Foundation, for making the workshop possible and for contributing significantly to the discussion.


Stephen A. Merrill, Study Director

Suggested Citation:"Front Matter." National Research Council. 2009. Investor Exits, Innovation, and Entrepreneurial Firm Growth: Questions for Research: Summary of a Workshop. Washington, DC: The National Academies Press. doi: 10.17226/12811.
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Suggested Citation:"Front Matter." National Research Council. 2009. Investor Exits, Innovation, and Entrepreneurial Firm Growth: Questions for Research: Summary of a Workshop. Washington, DC: The National Academies Press. doi: 10.17226/12811.
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Suggested Citation:"Front Matter." National Research Council. 2009. Investor Exits, Innovation, and Entrepreneurial Firm Growth: Questions for Research: Summary of a Workshop. Washington, DC: The National Academies Press. doi: 10.17226/12811.
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Suggested Citation:"Front Matter." National Research Council. 2009. Investor Exits, Innovation, and Entrepreneurial Firm Growth: Questions for Research: Summary of a Workshop. Washington, DC: The National Academies Press. doi: 10.17226/12811.
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Page viii Cite
Suggested Citation:"Front Matter." National Research Council. 2009. Investor Exits, Innovation, and Entrepreneurial Firm Growth: Questions for Research: Summary of a Workshop. Washington, DC: The National Academies Press. doi: 10.17226/12811.
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Suggested Citation:"Front Matter." National Research Council. 2009. Investor Exits, Innovation, and Entrepreneurial Firm Growth: Questions for Research: Summary of a Workshop. Washington, DC: The National Academies Press. doi: 10.17226/12811.
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Suggested Citation:"Front Matter." National Research Council. 2009. Investor Exits, Innovation, and Entrepreneurial Firm Growth: Questions for Research: Summary of a Workshop. Washington, DC: The National Academies Press. doi: 10.17226/12811.
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Suggested Citation:"Front Matter." National Research Council. 2009. Investor Exits, Innovation, and Entrepreneurial Firm Growth: Questions for Research: Summary of a Workshop. Washington, DC: The National Academies Press. doi: 10.17226/12811.
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The bursting of the dot-com bubble in 2001 coincided with an abrupt and lasting change in the development of entrepreneurial venture-backed firms in the United States. Previously, entrepreneurs and investors commonly took viable young firms public through initial public offerings. Since 2001, however, venture investors have more frequently exited by selling their companies to established corporations, usually for lower returns. There are concerns among some entrepreneurs, investors, and academics that this change has reduced the potential of young, entrepreneurial firms to contribute to innovation, job creation, international competitiveness, and economic growth. There are also claims that public policies, including securities regulation, have contributed to this result and should be modified or compensated for.

In 2007 investors, entrepreneurs, and academic experts in economics, corporate finance, and law came together to consider the merits and feasibility of additional research addressing the change in investor exit strategies, its causes and consequences. During the 2007 workshop, summarized in this volume, participants identified several factors complicating systematic inquiry and suggested a number of research avenues that could be productive.

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